The ROI Debate

Don summarized the meaning of his question about accountability as follows:

So far, the spirit of experimentation has provided a sort of ‘get out of jail free' card with respect to having to demonstrate the value of digital and social media programs and initiatives.

It looks like 2009 will change all that due primarily to three factors: - the widespread awareness of social media use in a business context - the economy - the economy

In a similar tone, Peter Kim recently took up the issue of return on investment (ROI) of social media. His thoughts on the topic were a response to a post by Lewis Green. Lewis offers a distinction between focusing on ROI and focusing on business Value as two different, though complementary, ways of addressing the importance of social media to business.

More recently, a Value Reference Model (VRM) was developed by the global not-for-profit Value Chain Group. The areas to be measured based on Value are:

Research and Development

Design of Products, Services, or Processes

Production

Marketing & Sales

Distribution

Customer Service

I'm not going to discuss the detailed example of the product lifecycle of a new coffee beverage that Lewis offers as a way to measure the Value of social media to business. Suffice it to say, saving time and money, is a key variable in four of the five points Lewis makes in his analysis of how VRM relates to the "ongoing benefits and results as determined by the lifetime of the product, service, process and customer." Lewis explains his examples of Value in terms compatible with an open innovation model of product development, marketing, and the customer. Saving time and money through the product lifecycle, though an important consideration, is only one Value coming from using social media to support open innovation in product development, marketing, and customer support.

Another reason for considering open innovation a source of Value involves the scale of some organizations. The scale of growth necessary in large enterprises is sometimes unsustainable using the "invent-it-ourselves" model, what I've previously termed self-oriented innovation. In addition, it seems reasonable that open innovation gains in strategic business importance to top-line growth in an economic environment where mergers and acquisitions are constrained.

The key question is whether the experiments in social media that Don refers to can accumulate observations and data over time that permit analyses of Value to measure Returns, specifically ROI, instead of savings. Interestingly, in contrast to Lewis and Peter's points, the Eighth Annual Burson-Marsteller/PRWeek CEO Survey supports a different set of conclusions regarding the business value of social media. The survey asked 200 CEOs of U.S. companies about their assessment of social media's value to their business.

Percent Who Believe Social Media Can Have an Impact on...

A company's overall reputation:

62%

A company's reputation around public issues (such as environmental/labor issues):

61%

Sales of a company's products and services:

48%

Perhaps as we consider marketing with social media we need to find out what 48% of CEOs claim to know that is missing in current efforts to measure ROI for social media. One additional point is worth making for those who believe CEOs aren't reliable sources for information about social media, preferring instead to think age and demographics determine usage patterns. Of the CEOs surveyed, 43% reported using online social media for personal purposes at least a few times per week. Another 12% reported using it a few times per month. In other words, 55% of CEOs surveyed reported using online social media on a relatively frequent basis for personal purposes.